The Colts Won’t Make Us Rich

September 17, 2011

For release Sept. 16 and thereafter (588 words)

I’m not a big fan of the National Football League (NFL) — I don’t bleed Colts blue — but I do catch a game here and there, and I’ll admit I’m glad the season started on time this year. But according to a recent article in the Indianapolis Star even football haters should be elated: NFL activity is an “economic windfall” without which “billions of dollars would disappear from the local economy.”

You’ll want a replay of that call, though.

There’s a “ripple effect,” the article contends. Downtown hotels, restaurants and bars fill with excited, free-spending fans. Sometimes people even pack sports bars in non-NFL cities to catch the action. And what’s more, NFL franchises employ hundreds of people, from peanut vendors and clean-up crews at the stadiums to the players and coaches themselves. And beyond that, there’s the sports-broadcasting industry. Television advertising on NFL games alone generates $3.2 billion. In sum, the NFL is said to be responsible for a whopping 110,000 jobs and $5 billion in economic activity.

No wonder there’s relief the NFL season was not interrupted. Come to think of it, if a football league with just 32 teams generates $5 billion and 110,000 jobs (3,400 jobs per team), would a league of 64 teams double that? How about 300 teams? That would bring 1 million jobs. Hey, President Obama, forget the infrastructure stuff; let’s expand the NFL to get those job numbers up.

In reality, expanding the NFL probably wouldn’t create any new jobs; indeed, the NFL might actually be a drag on the national economy.

Reports like the one printed in the Star conflate localized, visible spending with true economic stimulus. They miss the economic concept of substitution. Spending on NFL-related activities is not new money that would disappear from the economy if there were no professional football game.

What if the Colts went out of business next year? Would all that sports spending really vanish from the Indianapolis economy? No. Although fans would be disappointed, they would still have many outlets (substitutions) for their entertainment dollars. Attendance and spending at college and high-school football games would rise, along with bowling alleys, bingo parlors and other recreation venues. Downtown pubs might suffer but suburban restaurants would likely see a bump in revenue. Consumers of the NFL are us, after all. It’s not as if the NFL draws its customers from Mars. If there were no Colts, we would spend our fun money on something else.

The editors of the Star should be forgiven their ignorance of the substitution concept — they’re journalists, not economists. I fear, though, that the credulity given purported economic “facts” about professional sports exaggerates their impact and confuses public policy. The sad reality is that due to taxpayer subsidies — usually based on the very “stimulus effect” rubbish published by the Star — professional teams frequently overbuild with massive, lavish stadiums that wind up costing more than they bring in.

Numerous economic studies have tackled the question. The best-case scenario is that teams have a negligible impact on local jobs, wages and tax revenues. As any economist will tell you, only enterprises that can pass a “market test” are a genuine boon to the economy, i.e., their revenues exceed their costs. Obviously, such companies have no need for subsidies in the first place. This, however, doesn’t stop the professional-sports cartels from shaking down a towns’ citizens via the local political process.

If sports were a truly market-based business, who knows, maybe even I would become a fanatic.

Tyler A. Watts, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, teaches economics and occasionally watches football at Ball State University.

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